Bitcoin approved for political donations

The Federal Election Commission made a first-of-its-kind decision Thursday, issuing guidance to allow political action committees to accept Bitcoin donations from their supporters.

The FEC voted 6-0 to allow Make Your Laws PAC to accept up to
$100 worth of bitcoin per contributor each election, but must
“sell the bitcoins it purchases and deposit the proceeds into
its campaign depository before spending those funds,” the
panel said in its
advisory opinion memo to the PAC. It also said that PACs
“should value that contribution based on the market value of
bitcoins at the time the contribution is received,” and that
“earnings (or losses) realized upon the sale of any bitcoins
... must be reported like other investment earnings or
losses."

The panel agreed with the Make Your Laws (MYL) proposal, allowing
it “to accept bitcoins only through an online form on which
each bitcoin contributor, regardless of the proposed contribution
amount, will have to provide his or her name, physical address,
occupation, and employer," it wrote.
"Additionally, MYL intends to require each bitcoin
contributor to affirm that he or she owns the bitcoins
(individually, or jointly with a spouse) that he or she will
contribute. MYL also intends to require each bitcoin contributor
to affirm that he or she is not a foreign national.”

Once MYL has confirmed the identity and ownership information,
the PAC will send the donor a one-time “linked address” to send
the Bitcoin. It will then purchase the bitcoin on open,
high-volume exchanges, then sell them for dollars before being
deposited into its campaign account within 10 days or being used.
The decision isn’t allowing committees to make purchases with
Bitcoin. “But it isn't prohibiting them from doing so,
either,” Dave Levinthal at Public Integrity writes in
analyzing the guidance.

Levinthal notes that the FEC’s ruling was “relatively
narrow” and that the decision “left open as many
questions as it answered about the digital currency.” This
is in large part, he says, because the guidance only answers
MYL’s specific proposal. And that PAC only requested to accept
$100 worth of the digital currency.

So it may not be so simple to just donate bitcoin to a PAC as the
FEC has made it seem, due to the way the Internal Revenue Service
views the cryptocurrency. The tax agency ruled in
March that bitcoin is considered an asset or a property - not
currency - for tax purposes.

“That means anytime you use it, you must account for it in
the same way you would the sale of a stock for capital gains
purposes. Not doing so is illegal and punishable as tax
avoidance,” Boom Bust producer Edward Harrison said in an
e-mail. “Using bitcoin as payment for PACs, therefore makes
PACs subject to IRS search warrants to catch individuals avoiding
taxes illegally. And given what we have seen in
Switzerland in cracking down on tax avoidance, we should
fully expect the IRS to use this to justify PAC search warrants,
whether politically motivated or not.”

The FEC sidestepped the issue. “The Commission expresses no
opinion regarding the application of federal securities law, tax
law, or other law outside the Commission’s jurisdiction,”
the election commission panel stressed in its advisory opinion.

But FEC Chairman Lee Goodman believes the commission’s guidance
is in agreement with the IRS. “The Federal Election
Commission opined today that bitcoins will be regulated like
in-kind contributions,” he said, according to
The Hill. “So the commission effectively took the same
position that the IRS has taken, that bitcoins are in kind
property; they are not U.S. currency.”

And the FEC guidance comes one day after the Securities and
Exchange Commission
issued a warning to bitcoin investors“to make investors
aware about the potential risks of investments involving Bitcoin
and other forms of virtual currency.” Also on Wednesday, RT
reported that the US Department of Defense is conducting a
counterterrorism program investigation
of virtual currencies like Bitcoin.

Despite the potential legal ramifications from the Pentagon, SEC
or the IRS, politicians are already jumping on the Bitcoin wagon.
Rep. Jared Polis (D-Co.) was the first pol out of the gate, less
than six hours after the FEC decision.